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Turkish Lira dips after central bank’s governor removal fuels concerns

ANKARA: The Turkish currency lira fell by 3% after President Recep Tayyip Erdogan’s decision to remove the central bank governor fueled concerns the regulator will lower borrowing costs by more than expected.

The currency was 2.1% lower at 5.7487 per dollar as of 8:54 a.m. in Singapore, paring its world-beating advance over the past two months. It weakened to 5.8247 in early morning Asia trade, according to Bloomberg compiled data.

Erdogan removed Murat Cetinkaya over the weekend. The removal of central bank head came weeks ahead of it’s scheduled meeting to decide on policy. Deputy Governor Murat Uysal has replaced him.

During a closed meeting after the decree came out, Erdogan told lawmakers from his ruling party that politicians and bureaucrats all need to get behind his conviction that higher interest rates cause inflation, according to an official who was present. He also threatened consequences for anyone who defies the government’s economic policies, the official said.

The decision also gives bears the justification they needed for keeping bets against the currency at the highest in the world, in spite of the lira’s rally since early May, according to risk reversals.

“It’s undoubtedly bad news for Turkish assets,” Nigel Rendell, a London-based senior analyst at Medley, said on Saturday. “Once again Erdogan is interfering in the operation of the central bank because he thinks he knows best, which he doesn’t.”

Cetinkaya, appointed governor in April 2016, was criticized for acting too slowly to tighten monetary policy during a currency rout in August. He then showed resolve in the face of market turmoil, increasing the benchmark interest rate by 625 basis points in September and holding it ever since.